INTRODUCTION
At issue in this appeal is whether mortgage servicers can be "debt collectors" under California's Rosenthal Fair Debt Collection Practices Act (the Rosenthal Act; Civ. Code,
In this case, the plaintiff, Edward Davidson, brought a putative class action against Seterus and its parent company, International Business Machines, Inc. (IBM), alleging that the defendants violated the Act and the Unfair Competition Law (UCL). The defendants demurred to Davidson's complaint, arguing that neither of them is a " 'debt collector' " who engages in " 'debt collection' " under the Act.
On appeal, Davidson contends that the trial court erred in determining that mortgage servicers are not "debt collectors" under the Rosenthal Act. We ultimately agree with Davidson's contention, in no small part due to our adherence to "the general rule that civil statutes for the protection of the public are, generally, broadly construed in favor of that protective pur
We therefore reverse the judgment of the trial court and remand for further proceedings.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual background
In February 2012, Davidson's lender, Suntrust, transferred the servicing of his home mortgage to Seterus.
According to Davidson, immediately after Seterus began servicing Davidson's mortgage in 2012, Seterus started making harassing and annoying telephone calls to Davidson demanding payment of his mortgage. Davidson alleges that Seterus made these telephone calls demanding payment before Seterus had given him his new loan number and before his mortgage payments were due.
Davidson's mortgage payments are due on the first day of each month. His practice was, and had always been, to pay his monthly mortgage payment online on the first or second of each month. As Davidson alleges, "
Although Davidson had a history of timely paying his mortgage each month, individuals identifying themselves as Seterus employees called Davidson's cell phone two to five times per day, every day, between the 3rd and the 16th of each month, "demanding that he pay that month's mortgage payment." If Davidson did not answer his phone, the caller would hang up and repeatedly call again until Davidson did answer the phone. According to Davidson, Seterus employees would also frequently hang up even if Davidson did answer his phone.
Between February 2012 and September 2015, Davidson received hundreds of phone calls from employees of Seterus demanding mortgage payments that Davidson had already paid or that were not yet due. Davidson alleges that Seterus employees would call at intentionally inconvenient times, including early in the morning and while Davidson was at work.
In an attempt to put a stop to the calls from Seterus employees, Davidson began using a " 'Western Union Speedpay' " payment method that Seterus invited borrowers to use on its website. Davidson incurred a $5.00 transaction fee each month to utilize this payment method. Davidson's use of the " 'Western Union Speedpay' " payment method did nothing to abate the harassing phone calls from Seterus employees.
According to Davidson, the phone calls from Seterus employees included threats to report negative credit information to the credit bureaus, as well as threats to foreclose on Davidson's home.
Davidson notified Seterus numerous times, both in writing and by telephone, that he had already timely paid the full monthly payment amount and requested that the harassing phone calls stop. Seterus employees continued to call, despite Davidson's requests. In or around September 2015, Davidson asked an attorney to contact Seterus and demand that the harassing and threatening phone calls cease.
Seterus employees stopped calling Davidson after Seterus received a threat of legal action from Davidson's attorney.
On August 13, 2014, Seterus sent a letter to Davidson in which it agreed to stop contacting Davidson during the 15-day grace period, thereby implicitly acknowledging that Seterus employees had previously been contacting him during the grace period.
Davidson alleges that Seterus's collection practices caused him and other borrowers harm, including emotional distress and economic damages. Davidson spent
B. Procedural background
1. The complaint
Davidson filed a putative class action on behalf of California residents who have been subjected to the defendants' allegedly unlawful debt collection practices, in September 2016. Davidson's complaint set forth causes of action for violations of the Rosenthal Act and the UCL ( Bus. & Prof. Code, § 17200 et seq. ).
Davidson alleges that the defendants are " 'debt collectors' " who are subject to the requirements of the Rosenthal Act, and that they were acting as " 'debt collectors' " when they undertook the allegedly unlawful conduct described in his complaint. Davidson alleges that the defendants' conduct violates the Rosenthal Act's prohibitions against " '[c]ausing a telephone to ring repeatedly or continuously to annoy the person called' " and " 'communicating by telephone ... with the debtor with such frequency as to be unreasonable and
Davidson's UCL cause of action is based on the alleged violations of the Rosenthal Act which, he asserts, constitute per se violations of the UCL.
2. The defendants' demurrer
The defendants filed a demurrer to Davidson's complaint on May 11, 2016. The defendants argued that Davidson is unable to state facts sufficient to constitute a cause of action under the Rosenthal Act because neither Seterus nor IBM is a " 'debt collector' " who " 'engages in debt collection' " under the Rosenthal Act. IBM also argued that the cause of action against IBM is too uncertain because the complaint does not allege sufficient facts to establish that IBM is a debt collector and that it is liable for Seterus's conduct.
After full briefing, the trial court issued a tentative ruling on the defendants' demurrer on September 6, 2016, in which it indicated its intention to sustain the demurrer without leave to amend. The court held a hearing on the matter on September 9, and subsequently adopted its tentative ruling. In sustaining the demurrer without leave to amend, the trial court acknowledged the existence of a split of authority in the federal courts as to whether the Rosenthal Act's definition of "debt collector" includes a mortgage servicer. However, the court agreed with those courts that have concluded that a mortgage servicer may not be considered to be a "debt collector" under the Rosenthal Act. The court determined that because Davidson's UCL claim was derivative of his Rosenthal Act claim, the complaint failed to state a cause of action. The court also ruled, in the alternative, that as to IBM, the complaint failed to plead sufficient facts to demonstrate that IBM could be held liable for the actions of its subsidiary, Seterus. The trial court further determined that no amendment could cure the
The trial court entered judgment in favor of the defendants on October 5, 2016. Davidson filed a timely notice of appeal.
DISCUSSION
A. Legal standards on appeal from the sustaining of a demurrer without leave to amend
We apply the following well-established law in reviewing a trial court's order sustaining a demurrer without leave to amend: "We independently review the ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action. [Citation.] We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. [Citation.] We construe the pleading in a reasonable manner and read the allegations in context." ( Fremont Indemnity Co. v. Fremont General Corp . (2007)
Where the complaint fails to allege facts sufficient to state a cause of action and the trial court has sustained a demurrer without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." ( Blank v. Kirwan (1985)
B. The trial court erred in concluding that a mortgage servicer can never be a "debt collector" under the Rosenthal Act
1. Statutory interpretation standards
This case hinges on the proper interpretation of the Rosenthal Act. "The basic rules of statutory construction are well established. 'When construing a statute, a court seeks to determine and give effect to the intent of the enacting legislative body.' [Citation.] ' "We first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent. [Citation.] The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context." [Citation.] If the plain, commonsense meaning of a statute's words is unambiguous, the plain meaning controls.' " ( People v. King (2006)
"If, however, 'the statutory language may reasonably be given more than one interpretation, " ' "courts may consider various extrinsic aids, including
2. Statutory and legal framework
The Rosenthal Act was enacted "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts." (§ 1788.1, subd. (b).) The Rosenthal Act is " 'a remedial statute [that] should be interpreted broadly in order to effectuate its purpose.' " ( Komarova v. National Credit Acceptance, Inc. (2009)
The Rosenthal Act defines a "debt collector" as "any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engaged in debt collection ." (§ 1788.2, subd. (c), italics added.) The Rosenthal Act defines the term "debt collection" as follows: "any act or practice in connection with the collection of consumer debt." (§ 1788.2, subd. (b).)
The Rosenthal Act defines "consumer debt" and "consumer credit" as "money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction." (§ 1788.2, subdivision (f).) The Rosenthal Act further defines the phrase "consumer credit transaction" as "a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes." (§ 1788.2, subd. (e).)
Thus, a debt collector is a person who regularly engages in the act or practice of collecting money, property or their equivalent that is due or owing by a natural person as a result of a transaction between that person and
3. Analysis
The Rosenthal Act is silent with respect to whether it applies to persons or entities attempting to collect mortgage debt; the definitions of "debt collector," "consumer debt," and "consumer credit transaction" make no reference to mortgage lenders and/or servicers or to mortgage debt. Given that mortgage debt is neither expressly included nor excluded from the definition of "consumer debt," and that a mortgage transaction is neither expressly included nor excluded from the definition of "consumer credit transaction," we look to the words of the statute to determine whether they can be understood to either include or exclude from the statute's purview mortgage debt or mortgage lenders and/or servicers, keeping in mind that the Rosenthal Act " 'should be interpreted broadly in order to effectuate its purpose.' " ( Komarova , supra ,
The phrase, "consumer credit transaction" includes any "transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes ." (§ 1788.2, subd. (e), italics added.) The Rosenthal Act does not define the phrase "on credit" or the word "credit." The Oxford English Dictionary defines the phrase "on
The obtaining of a mortgage involves a transaction in which a natural person acquires property by way of borrowing the funds used to obtain the property from another person or entity without full immediate payment and with the promise to pay back those funds. It is readily apparent that persons who obtain mortgages very often do so in order to purchase a primary or even secondary residence, which may be considered to be a "personal, family, or household purpose[ ]." (§ 1788.2, subd. (e).) Further, there is nothing in the statutory definition of "consumer debt" or "consumer credit transaction" that would exclude a debt that otherwise comes within the terms of the Rosenthal Act merely because the debt is secured by real or personal property. At least one other California appellate court has permitted a Rosenthal Act claim to go forward against a lender who was attempting to collect on a residential mortgage loan secured by a junior lien. (See Alborzian v. JPMorgan Chase Bank, N.A. (2015)
Interpreting the Rosenthal Act in this way furthers the purpose of the legislation, which is to prohibit entities who are attempting to collect on a debt from "engaging in unfair or deceptive acts or practices in the collection of [those] debts." (§ 1788.1, subd. (b).) Although Seterus's disclaimer in its correspondence with
In arguing that the Rosenthal Act does not apply here, the defendants suggest that mortgage debt is not debt " 'obtained primarily for personal, family, or household purposes.' "
Although the defendants concede that "secured debt could still be a 'consumer debt,' " they nevertheless argue that this "does not mean a mortgage debt is a consumer debt." The defendants explain that, in their view, "[t]he deciding factor is not whether the debt is 'secured,' but whether the debt was obtained in exchange for goods or services with a 'personal, family, or household purpose.' " The defendants' reference to "goods or services" is inapt. The Rosenthal Act covers transactions beyond those involving consumer goods or services . The Act specifies that it covers debt that is incurred to acquire property , without any limitation as to the nature of that property, as well as to services or even money. (§ 1788.2, subd. (e).) We therefore decline to look to other "federal and state statutes that apply only to purchases of 'consumer' goods , such as California's Song-Beverly Consumer Warranty Act or the federal Magnuson-Moss Act" in interpreting the definitions provided in the Rosenthal Act, as the defendants' request.
We also reject the conclusory argument in defendants' briefing that a real estate transaction simply cannot be considered to be a "consumer" transaction. The defendants contend, in essence, that a "real estate transaction" is an "economic transaction for a fixed and permanent asset," and usually involves "relative complexity" and a "mountain of paperwork, only some of it related to the actual funding of the transaction." According to the defendants, these facts somehow mean that such a transaction cannot be considered to be a "consumer transaction." As we have explained, however, the Legislature provided a specific definition of a "consumer credit transaction," and that definition is sufficiently broad to include transactions that involve real property; there is no indication in the text of the provision that it is intended to exclude transactions that involve real property or the use of real property as security for the debt, nor is there any indication that the statute excludes transactions that are complex or involve "a mountain of paperwork."
Further, to the extent that the defendants are advocating an interpretation of the Rosenthal Act's definition of "consumer debt" that would exclude debt secured by a deed of trust to real property, such an interpretation is undermined by the fact that there is no express exemption in the Act for a debt secured by a deed of trust, and also by the fact that elsewhere in
"In performing acts required by this article, the trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage. In performing the acts required by this article, a trustee shall not be subject to Title 1.6c (commencing with Section 1788 ) of Part 4."
The Legislature carefully crafted this exemption to apply only to a trustee under a deed of trust, and only to that trustee's performance of the acts required under Article 1 of Chapter 2 of Title 14 of the Civil Code. In enacting this exemption from the Rosenthal Act, the Legislature has expressly limited it to the acts of a trustee exercising the trustee's powers under a deed of trust. If the Legislature did not intend for the Rosenthal Act to apply to collection efforts for debts that are secured by a deed of trust to real property or for which foreclosure proceedings could be commenced or were being prosecuted, there would have been no reason to enact the exemption found in section 2924, subdivision (b).
The defendants assert that "the majority of federal courts analyzing the Rosenthal Act have excluded mortgage servicing from the definition of debt collectors," to support their position. (Some capitalization omitted.) However, many of the authorities that the defendants cite as support for this assertion in fact address a slightly different issue. Specifically, many of the cases on which the defendants rely hold that foreclosing on a deed of trust does not constitute "debt collection" under the Rosenthal Act. (See Pittman v. Barclays Capital Real Estate, Inc . (S.D.Cal., Apr. 24, 2009, No. 09 CV 0241 JM (AJB) )
The defendants rely on these and the other cases that involve slightly different issues to support their assertion that the "majority" of federal courts have "excluded mortgage servicing from the definition of debt collectors." We are unconvinced of this proposition. A number of other federal authorities have concluded that mortgage servicers and/or mortgage lenders can and do fall within the definition of "debt collector" under the Rosenthal Act. (See, e.g.,
In our view, those federal courts that have concluded that section 1788.2's definition of "debt collector" may include mortgage lenders and mortgage servicers have the better position under an analysis of the actual statutory language. Significantly, a number of the federal courts that have concluded that mortgage lenders and servicers may not be considered to be "debt collectors" under the Rosenthal Act have either not considered the actual language of the Rosenthal Act or have relied on the fact that mortgage lenders and mortgage servicers would not be "debt collectors" under the FDCPA in reaching their conclusion regarding the Rosenthal Act. (See, e.g., Lal , supra ,
The defendants concede that the FDCPA and the Rosenthal Act are not entirely coextensive. However, they nevertheless argue that even though the Rosenthal Act "uses a different definition of debt collector than the [FDCPA]," this does not mean that the Rosenthal Act "regulates mortgage servicers" but the "FDCPA does not." They insist, instead, that the "[t]he FDCPA and the Rosenthal Act, though using slightly different language, both exclude mortgage servicers." However, it is clear that the Legislature intended for the Rosenthal Act to provide a broader definition of "debt collector" than that provided in the FDCPA, and, as we have explained, the Rosenthal Act's reference to an entity that attempts to collect money that is due as a result of a consumer credit transaction, by its express terms, would not exclude a mortgage servicer. There is no other provision in the Rosenthal Act that
We therefore conclude that the Rosenthal Act's definition of "debt collector" applies to a mortgage servicer who engages in debt collection practices in attempting to obtain repayment of mortgage debt, and that the trial court improperly sustained the defendants' demurrer on the ground that the Act does not apply to mortgage servicers. Given our reversal of the court's ruling with respect to the Rosenthal Act claim, we must also
C. The trial court erred in concluding that Davidson failed to plead facts sufficient to state a cause of action against IBM on an alter ego theory
Davidson also contends that the trial court erred in its alternative basis for granting IBM's demurrer. The trial court concluded that, as to IBM, the complaint failed to plead sufficient facts to demonstrate that IBM could be held liable for the actions of its subsidiary, Seterus. Essentially, the trial court determined that the complaint was insufficient to state a cause of action against IBM because the complaint did not sufficiently allege IBM's control of its subsidiary, Seterus.
"It is fundamental that a corporation is a legal entity that is distinct from its shareholders." ( Grosset v. Wenaas (2008)
In determining whether to treat a subsidiary as the alter ego of its parent corporation, a court is to assess whether (1) there is " 'such unity of interest and ownership that the separate personalities of the [subsidiary] corporation and [its parent corporation or individual owner] no longer exist' " and (2) " 'if the acts are treated as those of the [subsidiary] alone, an inequitable result will follow.' " ( Mesler v. Bragg Management Co. (1985)
The trial court relied on these alter-ego standards in concluding that the complaint is insufficient to state a cause of action against IBM. However, Davidson's complaint does not rest on alter-ego allegations against IBM; the complaint does not allege liability on IBM's part based solely on its status as Seterus's parent corporation. Rather, the complaint asserts that IBM, itself, was actively involved in the alleged illegal conduct. Specifically, the complaint alleges:
"16. Plaintiff is informed and believes, and thereon alleges, that each and all of the acts and omissions alleged herein were performed by, or are attributable to, Defendants SETERUS, INC. and INTERNATIONAL BUSINESS MACHINES CORPORATION and/or DOES 1 through 10 (collectively 'DEFENDANTS' or 'SETERUS, INC.'), each acting as the agent for the other, with legal authority to act on the other's behalf. The acts of any and all Defendants were in accordance with, and represent, the official policy of Defendants.
"17. At all relevant times, DEFENDANTS, and each of them, ratified each and every act or omission complained of herein. At all relevant times, DEFENDANTS, and each of them, aided and abetted the acts and omissions of each and all the other Defendants in proximately causing the damages herein alleged.
"18. Plaintiff is informed and believes, and thereon alleges, that each of said Defendants is in some manner intentionally, negligently, or otherwise responsible for the acts, omissions, occurrences, and transactions alleged herein."
Again, in addressing a demurrer, we assume that the allegations in the complaint are true. ( Fremont Indemnity , supra ,
IV.
CONCLUSION
The judgment of the trial court is reversed. Appellant Davidson is entitled to costs on appeal.
WE CONCUR:
NARES, Acting P. J.
HALLER, J.
Notes
Further statutory references are to the Civil Code unless otherwise indicated.
IBM also demurred on the ground that the facts as alleged are insufficient to state a cause of action as to it because the complaint does not establish that IBM was a debt collector or that it may be held liable for Seterus's conduct.
The trial court also concluded that the claims against IBM failed, independently, because Davidson failed to plead sufficient facts to hold parent company IBM liable for the actions of its subsidiary, Seterus.
According to the complaint, on March 26, 2007, IBM formed IBM Lender Business Process Services, Inc., a wholly owned subsidiary of IBM specializing in providing mortgage services. In July 2011, IBM Lender Business Process Services, Inc. changed its name to Seterus, Inc. As alleged in the complaint, "[a] major component of DEFENDANTS' mortgage servicing business entails collecting and processing monthly mortgage payments from borrowers on behalf of the mortgage lender or current mortgage holder." Davidson's allegations against IBM are based on its role as the parent company of Seterus, and the further allegations that both Seterus and IBM performed the acts and omissions alleged in the complaint, so such acts and omissions were attributable to them, and that each was "acting as the agent for the other, with legal authority to act on the other's behalf." Davidson further alleges that each of the defendants "ratified each and every act or omission complained of" in the complaint and that each of them "aided and abetted the acts and omissions of each and all the other Defendants in proximately causing the damages herein alleged." For this reason, Davidson alleges that "each of said Defendants is in some manner intentionally, negligently, or otherwise responsible for the acts, omissions, occurrences, and transactions alleged herein."
At least one call, made on September 17, 2015, was placed at 6:48 a.m.
The complaint alleges that Seterus employees made similar threats to other members of the putative class.
The purpose of the FDCPA is "to eliminate abusive debt collection practices by debt collectors, to insure [sic ] that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." (
Courts often consult dictionaries in an effort to determine the usual and ordinary meaning of a word. (Coburn v. Sievert (2005)
Although the Alborzian court did not directly address the issue whether a mortgage lender comes within the Rosenthal's Act's definition of a "debt collector," the court clearly treated mortgage debt as falling within the framework of the Rosenthal Act's protections. (See Alborzian , supra , 235 Cal.App.4th at pp. 36-38,
We reject the defendants' attempt to distinguish the debt at issue in Alborzian , which was no longer secured by the property because of the foreclosure process, from Davidson's debt or a debt secured by a first mortgage. We see nothing in the Rosenthal Act that would allow debts that were acquired for personal, family, or household purposes to be treated differently under the Rosenthal Act on the ground that one debt remains secured by real property while the other does not.
Although their contention is not at all clear to this court, defendants appear to suggest this by stating that the "Rosenthal Act, as its plain language reveals, governs debt collection only where the credit was 'obtained primarily for personal, family, or household purposes,' " and then arguing that "[t]he Landry [, supra ,
The Ninth Circuit Court of Appeals has concluded that a secured mortgage debt may be a consumer debt under the Bankruptcy Code. (See In re Kelly (9th. Cir. 1988)
The FCRPA defines the term "debt" in a manner similar to the way in which the Rosenthal Act defines a "consumer credit transaction." "[D]ebt" under the FCRPA "means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes , whether or not such obligation has been reduced to judgment." (15 U.S.C.A. § 1692a, subd. (5), italics added.)
In a footnote, the defendants also cite the following authorities, which similarly address the question whether foreclosing on a deed of trust is "debt collection" under the Rosenthal Act: Ricon v. Recontrust Co . (S.D.Cal., Aug. 4, 2009, No. 09CV937-IEG-JMA)
Some federal courts have explained that conduct associated with a nonjudicial foreclosure typically does not constitute a "debt collection activity" giving rise to a cause of action under the Rosenthal Act. (See Sipe v. Countrywide Bank (E.D.Cal. 2010)
In fact, the possibility that a state might adopt a more expansive definition of "debt collector" than is provided by the FDCPA is contemplated by the FDCPA's preemption provision, which specifically allows for a state law to provide for greater consumer protections than the FDCPA. That provision states: "a State law is not inconsistent with this [subchapter] if the protection such law affords any consumer is greater than the protection provided by this [subchapter]." (15 U.S.C. § 1692n.)
The defendants concede that the UCL claim is predicated on the Rosenthal Act claim, and that it therefore succeeds or fails based on the success or failure of the Rosenthal Act claim.
In evaluating the two requirements of the alter ego doctrine, courts look to the totality of the circumstances bearing on the relationship between the parent and its subsidiary. (Hasso , supra ,
There are references in the complaint to conduct undertaken by "SETERUS, INC.," without reference to IBM as well. However, as Davidson points out, the complaint defines the terms "DEFENDANTS" and "SETERUS, INC" as referring to the named defendants, jointly, as well as the Doe defendants. Therefore, references in the complaint to conduct undertaken by "SETERUS, INC." are, by definition, references to conduct alleged to have been undertaken both Seterus and IBM.
We do not intend to make any comment as to whether Davidson will be able to support these allegations with evidence as to IBM's role in the challenged conduct as the case moves forward. We are merely addressing the nature of the allegations in the complaint and their sufficiency for purposes of withstanding a demurrer.